Capital Square Delivers 226% Equity Multiple in Georgia Multifamily Delaware Statutory Trust (DST) to UPREIT Transaction

ATHENS, Ga., June 3, 2024 /PRNewswire/ -- Capital Square, one of the nation's leading sponsors of tax-advantaged real estate investments and an active developer and manager of housing communities, announced today the successful UPREIT transaction for High Ridge Apartments, a 160-unit multifamily community in Athens, Georgia. In the UPREIT transaction, over 71% of the DST owners (by value) exchanged their DST interests for operating partnership units in Capital Square Apartment REIT, Inc. in a tax-advantaged transaction under Section 721 of the Internal Revenue Code.

Capital Square originally acquired the property for $15.5 million in 2017 as sponsor of the DST/Section 1031 exchange program. As a result of the $26.9 million UPREIT transaction, the DST owners realized a 226% equity multiple and total return of over 185%.¹

"The DST structure has worked exceptionally well for the past decade but has a number of limitations. DST properties must be sold when their loans mature, and no additional capital can be added, even when in the owners' best interests," said Louis Rogers, founder and co-chief executive officer of Capital Square, and also a proponent of the DST structure as a tax attorney and sponsor. "Capital Square has an outstanding portfolio of DST properties, including High Ridge Apartments, that should be held longer than permitted as a DST, gaining further advantages such as cash flow, future appreciation and numerous REIT benefits, including liquidity options."

Unlike many UPREIT transactions, Capital Square uniquely afforded its investors multiple options to:

• exchange their DST interests for operating partnership units in the REIT without taxation under Section 721,
• structure another exchange to continue their tax deferral under Section 1031, or
• cash out all or a portion of their investment on a taxable basis.

Rogers added, "UPREIT transactions have been around for a long time. Sam Zell is well known for the UPREIT strategy that allows owners to diversify and reduce risk by exchanging their single property for units in a REIT's operating partnership that owns a much larger portfolio.

"In the High Ridge UPREIT transaction, DST owners were given full market value for their interests. Each owner had the option to choose (i) operating partnership units, (ii) cash to do another 1031 exchange or (iii) cash out on a taxable basis. At Capital Square, we believe investors should have the right to choose; this 'voluntary UPREIT' is in the best interests of the DST owners."

Regardless of the option selected, all investors were treated equally, with the same fair market value purchase price based on MAI appraisals and an identical fee structure.

Located at 700 Mitchell Bridge Road, High Ridge Apartments is situated on 17.99 acres of land. The community is comprised of 11 two- and three-story residential apartment buildings consisting of one-, two- and three-bedroom units that average 1,228 square feet in size. The community has a complete amenities package, including a clubhouse, fitness center, grilling area, lighted tennis court, playground and a swimming pool, as well as onsite management and maintenance. Individual unit amenities include custom cabinetry, energy efficient appliances, a private balcony or patio, and walk-in closets.

High Ridge Apartments is centrally located near Georgia State Route 10 Loop, U.S. Route 78 and U.S. Route 129. Residents benefit from access to the region's nature parks, entertainment venues, upscale shopping hubs and numerous dining options. The property is less than a 15-minute drive from Athens' top employers, including University of Georgia, Piedmont Athens Regional Medical Center, Athens-Clarke County Government and Clarke County School District.

The $26.9 million fair market value of High Ridge was established based on an independent MAI appraisal. Additionally, the board of directors of Capital Square Apartment REIT obtained a fairness opinion from Robert A. Stanger & Company, a third-party investment banking firm.

"The sale of High Ridge Apartments demonstrates Capital Square's ability to deliver attractive total returns to DST investors, providing a significant appreciation in value over a seven-year holding period," said Whitson Huffman, co-chief executive officer. "The High Ridge DST investment provided investors with access to higher quality real estate than they would have been able to afford on their own through an efficient 1031 exchange process. Investors who participated in the UPREIT transaction received enhanced portfolio diversification and greater cash flow along with numerous REIT benefits, including liquidity options."²

Since its founding in 2012, Capital Square has acquired more than 170 real estate assets for over 6,500 investors seeking quality replacement properties that qualify for tax deferral under Section 1031 of the Internal Revenue Code and other investors seeking stable cash flow and capital appreciation. The firm has a portfolio of 53 multifamily apartment communities, 13 age-restricted manufactured housing communities in Florida and seven build-for-rent communities, with a total investment cost of over $4.8 billion.

About Capital Square
Capital Square is a vertically integrated national real estate firm specializing in tax-advantaged real estate investments, including Delaware statutory trusts for Section 1031 exchanges, qualified opportunity zone funds for tax deferral and exclusion and a real estate investment trust (REIT). The company is also an active developer and manager of multifamily communities. Since 2012, Capital Square has completed more than $7.8 billion in transaction volume. Capital Square's eight most recent mixed-used development projects total approximately 2,000 apartment units with a total development cost in excess of $590 million, and Capital Square Living, the firm's property management division, now manages over 7,000 apartments across multiple states. Capital Square's related entities provide a range of services – including due diligence, acquisition, loan sourcing, property/asset management and disposition – for a growing number of high-net-worth investors, private equity firms, family offices and institutional investors. Recognized by Inc. 5000 as one of the fastest growing companies in the nation for seven consecutive years, Capital Square raises capital, buildings and expectations. Learn more at CapitalSq.com.

Disclaimer: Securities offered through WealthForge Securities, LLC, Member FINRA/SIPC. Capital Square and WealthForge Securities, LLC are separate entities. There are material risks associated with investing in DST properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to see any securities. Please read the Private Placement Memorandum (PPM) in its entirety, paying careful attention to the risk section prior to investing. Private placements are speculative. Diversification does not guarantee profits or protect against losses. FINRA Broker Check link: https://brokercheck.finra.org/.

1. The equity multiple is the sum of sales proceeds plus cash flow distributions received throughout the hold divided by the original equity invested. The "total return" represents the ratio of total sales proceeds and distributions through the life of the asset over the total initial equity invested. The "annualized return" is defined as the difference between net sale proceeds and initial investment, plus the distributions over the holding period, divided by the initial investment; divided by the number of months; times 12. The ROE and annualized return are net of fees and represent a return to an individual investor. No representation is made that any investment will or is likely to achieve profits or losses similar to those achieved in the past or that losses will not be incurred.
2. Distributions are estimated based on historical operations of the DST and the REIT. Future distribution declarations of the Trust (and therefore the OP) are at the discretion of the REIT's board of directors and are not guaranteed.

SOURCE Capital Square